Life Insurance
Life Insurance Payout in Canada: What Is It and How Does it Work? (2023)
June 1, 2023
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5 minutes
Key takeaways
Joint life insurance is a single policy that covers two people, usually spouses or common-law partners.
If one partner passes away while the policy's active, the beneficiary gets a tax-free, lump-sum payment that they can spend however they wish.
The key flaws with joint life insurance for couples? While joint policies can sometimes be cheaper, they only pay a death benefit out once. And if you ever break up, separate or get divorced, splitting the policy up can be a big headache.
Joint life insurance provides a financial safety net for your partner (or other dependents) if you pass away.
Here's how joint life insurance works in Canada:
And take note that joint life insurance can be either temporary or permanent.
What type should you get? Permanent life insurance (i.e. whole or universal) can be a good option for high-net-worth individuals with complex estate planning needs.
Term works best for couples and families with young kids. PolicyMe has some of Canada's most affordable term rates, plus $10,000 in free child coverage. Apply together and save:
A joint life insurance policy can be tough to divide if you and your partner decide to divorce or separate.
Here are your options if you need to split up a joint policy:
There are three main types of joint life insurance policies:
Joint first-to-die is a type of life insurance policy that pays out a death benefit when the first partner passes. The policy ends after the payout, so the surviving partner would have to apply for a new policy if they want one.
A first-to-die policy can cover expenses such as a mortgage, debts or childcare.
What is the main drawback for this type of joint coverage? Once there's a payout after the first death, the policy is no longer active. If the surviving partner wants coverage, they'd have to buy a new policy.
Joint last-to-die life insurance pays out a death benefit when the last surviving partner passes. Last-to-die is also called survivorship life insurance.
This type of policy is best used to support the couple's kids because the surviving partner doesn't get a payout when the first person passes.
The bottom line? Joint last-to-die policies are best used for complex estate planning purposes. Couples can use a last-to-die policy to ensure their children's future.
Combined life insurance isn't a joint policy at all; it joins two single life insurance policies with different terms, conditions and payouts. When each partner holds their own policy, two separate death benefits can be paid out.
Here’s how these three main types of coverage for couples compare:
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Combining two individual life insurance policies is generally a safer and more flexible choice. Both partners hold their own policies on their own terms.
Get the best of both worlds with PolicyMe: couples can apply together online for separate individual policies and save money in the process.
Joint life insurance is a single policy that covers two people, with one premium. A joint life insurance policy can be cheaper than buying two separate individual life insurance policies.
But on the flip side, individual life insurance gives you the flexibility to pick different lengths, conditions and coverage amounts for you and your partner.
The long and short of it is that joint life insurance is best suited for couples in very specific life situations. It's usually a better idea for each partner/spouse to get a single life insurance policy that is tailored to your particular needs.
Here's a point-for-point look at the advantages and disadvantages of joint life insurance:
A joint life insurance policy can be cheaper and more simple to apply for, but once you're locked in, there's not a lot of flexibility.
The amount of life insurance a married couple needs will depend on a few different factors. For example, things like debts, income, financial obligations, existing policies, etc. will play into how much coverage is needed.
These questions will help you think about how much life insurance you need for your family’s financial well-being in the face of an unexpected death.
Calculate how much income you'd need to provide for your family, along with an estimate of how long that coverage will be necessary to keep your family afloat.
Generally, coverage amounts can range between five to 10 times the holder's salary. The average Canadian household is insured for about $442,000, reports the Canadian Life & Health Insurance Association.
There are a few life insurance companies where you can buy joint life insurance policies in Canada:
How much would a life insurance premium cost for couples' coverage? Here's a sample quote for life insurance for couples from PolicyMe to help you get an idea:
$13.21 per month for partner 1 (woman), $16.89 per month for partner 2 (man). These rates are for the first year with the 10 per cent couples discount, based on a 20-year term policy for $250,000 coverage.
Whether joint life insurance pays out twice depends on the type of joint life insurance you hold. For example, first-to-die and last-to-die insurance will payout the entire death benefit just once because they operate as one policy covering two people.
However, combined life insurance does pay out twice. It's when you and your spouse opt for two separate policies from the same insurance company at the same time. Essentially, two policies = two death benefit payouts.
Family life insurance isn’t a specific type of life insurance coverage, but a term that insurance companies can use for life insurance plans geared toward families. Think of this as a provider-created package deal.
One example is bundling a term life insurance policy with a child life protection rider. But broadly speaking, knowing how much life insurance your family needs for financial protection will help you select coverage that makes sense for you – whether or not the word “family” is on the tin.
Spouse life insurance sets up a death benefit for the surviving spouse. Some life insurance companies also offer a spousal rider, covering the policyholder’s spouse. Generally, the coverage amounts for a spousal rider are much smaller than a joint policy or two separate policies.
How much coverage your spouse needs will depend on how much you rely on your spouse for financial support. Think about things like your shared monthly expenses, your housing costs, childcare costs, etc.
Married couples don't necessarily need life insurance to complete the marriage. The purpose of life insurance is to leave behind a financial safety net for your family in case you or your partner passes.
If you're married and have shared financial obligations, like a mortgage or young kids, it's a good idea to consider getting life insurance. That way, your family will have a monetary cushion if you weren't there to support them.
As a stay-at-home parent, the decision to buy life insurance should be based on your individual circumstances. You may not have a “traditional” income to replace, but consider the financial contributions you make to your family.
Without you, your family may have to pay for everything you do in order to run your home, like childcare for example. And if you were to pass away, your family may face unexpected expenses like funeral costs or medical bills.
Ultimately, the decision to purchase life insurance should be based on your unique situation, but don’t discount your financial contribution as a stay-at-home parent!
The best time for couples to get life insurance is when either of them depends on the other's income. Are you in a relationship with shared financial obligations and dependents in your care?
If so, it's time to consider couples' life insurance. The sooner you get coverage, the better.
You're likely to be healthier at this stage of life, and less risky to insure. Life insurance rates go up as you grow up, so it makes sense to lock your rate in.
And term life insurance policies for young families can be quite affordable. In a recent survey, we found that while 77 per cent of Canadian parents have life insurance, many either have:
You and your partner won't always buy your policies from the same insurance company, as is the case with joint and combined life insurance. This may happen when one partner gets approved with one insurer but the other doesn't, and has to get their life insurance elsewhere.
For example, if one of you poses a higher risk to the insurer and is declined coverage. For example, if you have a pre-existing condition, have a criminal record or driving incidents on record.
In which case it makes sense for that partner to look into a "no medical" life insurance policy. But those kinds of policies are more costly, so it's a better idea to mix-and-match your couples coverage with single life insurance policies.
Our sources:
ACCAP - Canadian life and Health Insurance Facts, 2022 edition. CLHIA. (n.d.). http://clhia.uberflip.com/i/1478447-canadian-life-and-health-insurance-facts-2022-edition/3
Survey Reveals Parents' Biggest Life Insurance Mistakes. PolicyMe. McKay, Laura. https://www.policyme.com/blog/survey-reveals-parents-biggest-life-insurance-mistakes
WinQuote Canadian Products. WinQuote by Equisoft. Accessed May 2023. https://www.winquote.net/
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